Joining the growing number of states who are implementing the National Association of Insurance Commissioners’ (NAIC) model regulation concerning suitability in annuity transactions, New Mexico has issued its best interest rule to become effective on October 1, 2022. The rule will require insurance producers to act in the best interest of a consumer when making a sale or recommendation of an annuity in New Mexico or to a resident of New Mexico and will obligate the insurer to establish and maintain a system to supervise recommendations to ensure compliance.
Exam Time: FINRA Releases its 2022 Report on its Examination and Risk Monitoring Program
A common phrase to abide by in the New Year is “out with the old, in with the new.” FINRA’s 2022 Report on its Examination and Risk Monitoring Program (the “Report”), however, contains a combination of old and new priorities. We previously previewed the Report.
Old priorities, once again included, are: Anti-Money Laundering, Reg BI and Form CRS, and cybersecurity.
New risk areas include: firm short positions and fails-to-receive in municipal securities; trusted contact persons; funding portals and crowdfunding offerings, disclosure of routing information; and portfolio margin and intraday trading.
Recent State Fiduciary and Best Interest Developments: Pennsylvania’s New Law; Nevada May be Next
Pennsylvania has adopted legislation implementing the model regulation concerning suitability in annuity transactions adopted by the National Association of Insurance Commissioners (NAIC). This brings to 19 the total number of states adopting the NAIC suitability model. Nevada may be the next state to watch. Nevada’s Securities Administrator has indicated that she is resuming work on the state’s fiduciary rule for investment advisers and broker-dealers and expects to release the rule by November. Stay tuned.
Brace for Impact: It’s Going to be (Another) Busy Year for FINRA
F. Scott Fitzgerald said “There are only the pursued, the pursuing, the busy, and the tired.” FINRA may be all of these in 2022, as FINRA CEO Robert Cook announced FINRA’s laundry list of priorities during a SIFMA Q&A last week. Below are some of the highlights from his Q&A.
Exam Time: Annual Exam and Risk Monitoring Findings
While Mr. Cook advised the “ink isn’t dry” on the 2022 priorities, he suggested broker-dealers can expect more of the same, with some new additions. New topics for examination will include: trusted contact person, disclosure of order routing, and intra-day trading.
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Broker-Dealer Regulation & Litigation Digest – Fall 2021
The Broker-Dealer Regulation & Litigation Digest is a periodic compilation of well-read blog posts published on the Broker-Dealer Law Blog during the last few months. Here you can catch up on what you missed or re-read these popular posts.
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PTE 2020-02 Compliance: Avoiding Five Common Mistakes
It may be a New Year, but 2022 is going to seem very familiar to Broker-Dealers (BD) and their Registered Representatives who advise retirement plans and IRAs: they are going to be spending a lot of time working to comply with new exemptions and new ERISA rules coming from the Department of Labor (DOL). As some of these deadlines are right around the corner, in this post we’re going to review the five most common pitfalls and problems we’ve seen clients face, and how to better address them in disclosures and policies and procedures.
So what’s ahead this year regarding fiduciary advice and exemptions? First, DOL is working on a new proposed definition of ERISA fiduciary investment advice to replace the 1975 regulation, and could publish the new proposal for comments this spring. This proposal may also include changes to DOL’s new Prohibited Transaction Exemption 2020-02 (the PTE). If DOL succeeds in rewriting these rules, they likely will go into effect in 2023. That means the current rule and the current version of the PTE will likely remain in effect for the next 12-18 months.
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Reg BI: What’s Going On and What May Happen Next?
SEC Chair Gary Gensler has not publicly stated much regarding Reg BI since Spring of this year. Generally, though, the messaging from SEC leadership regarding the Division of Examinations and the Division of Enforcement continues to be aggressive. In the retail investor area, for example, in late August Chair Gensler appointed Barbara Roper, the Director of Investor Protection for the Consumer Federation of America, as a Senior Advisor to the Chair. Turning back to Reg BI specifically, what we continue to hear out of the SEC is that Chair Gensler’s regime is going to play the Reg BI “hand that it has been dealt” aggressively.
On November 4, 2021, SEC Commissioner and former Acting Chair Allison Herren Lee gave a speech at ACLI’s CLE 2021 Conference on Life Insurance Products entitled “A Call to Action: Recommendations for Complying with Reg BI.” Commissioner Herren Lee covered several Reg BI topics, including what constitutes a recommendation and mitigation. Regarding recommendations, she noted that the Commission’s supplemental materials accompanying Reg BI speak of a “call to action” that may be viewed as influencing an investor to invest in or trade a particular security being enough to constitute a recommendation. On this topic, she emphasized the importance of the account opening process. Commissioner Herren Lee also addressed mitigation, in particular to manage the risk of an associated person putting their interests ahead of their customers, perhaps due to limitations in the firm’s products menu.
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SLOW Your Roll: DOL Temporarily Halts Enforcement of Compliance with PTE and ERISA Fiduciary Obligations for Rollover Advice
Benjamin Franklin once said “don’t put off until tomorrow what you can do today.” While that is always prudent advice, the Department of Labor (DOL) believes it’s best to grant an extension to investment advisors and broker-dealers to comply with the full terms of the Prohibited Transaction Exemption 2020-02 (PTE 2020-02), beyond the current December 21, 2021, deadline. A previous blog post covered the scope of the PTE and provided guidance on compliance.
The New DOL Fiduciary “Rule” For Investment Advisers and Broker-Dealers and the December 20 Deadline: The Time to Act is Now
The DOL’s new fiduciary “rule” became effective on February 16, 2021. The rule is a combination of a new and expansive definition of fiduciary advice (and status) and an exemption from the prohibitions of ERISA and the Internal Revenue Code for financial conflicts of interest arising from nondiscretionary fiduciary advice. These changes impact all investment advisers and broker-dealers who provide services to retirement plans, participants and IRA owners.
This article summarizes the new guidance, the requirements currently in effect, and the demanding additional requirements that must be satisfied beginning on December 21, 2021. And, beginning on December 21, the full terms of Prohibited Transaction Exemption (PTE) 2020-02 will apply, including the acknowledgement of fiduciary status, the conflicts and services disclosures and, for the types of rollovers discussed below, the written statement of the “specific reasons” the rollover recommendation is in the best interest of the participant or IRA owner.
Broker-Dealer Regulation & Litigation Digest – Summer 2021
The Broker-Dealer Regulation & Litigation Digest is a periodic compilation of the most read blog posts published here during the last few months. Here you can catch up on what you missed or re-read these popular posts.
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